Alpha Metallurgical Resources, Inc.

Greetings and welcome to the Alpha Metallurgical Resources fourth quarter 2024 results conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin.

Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's fourth quarter and full year 2024 earnings release and the associated SEC filing. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to gap measures. Participating on the call today are ALSA's Chief Executive Officer, Andy Edson, and our President and Chief Operating Officer, Jason Whitehead. Also participating on the call are Todd Muncy, our Chief Financial Officer, and Dan Horn, our Chief Commercial Officer. With that, I will turn the call over to Andy.

Thanks, Emily, and good morning, everyone. Today, we announced financial results for the fourth quarter in the full year of 2024, which included adjusted EBITDA of $53 million and 4.1 million tons shipped in the quarter. And despite the deteriorating coal market conditions, our teams completed another year of safe production with record-setting safety metrics. As we've discussed in prior calls, the metallurgical coal market conditions have been negatively impacted by weak global steel demand, and these conditions persist. Our operations, like all others in Central Appalachia, have also experienced significant challenges because of extreme weather this winter, which will have substantial implications for our quarterly performance for the first and perhaps second quarters. Jason will be sharing details on those impacts later. These issues caused us to increase the top end of our cost of coal sales guidance for the year and to bring down our annual metallurgical shipment volume guidance by 500,000 tons. This half a million ton figure roughly aligns with the amount we expect to have missed in the first quarter due to the confluence of loss shifts from absenteeism, power outages, snow and flooding impacts, and transportation delays. Beyond these direct impacts on our ability to move coal, other producers who we purchase coal from have experienced the same issues, so we've not been able to buy as much coal as expected in the first quarter. All of this, coupled with the continued weakness in the metallurgical coal markets, means we expect the rest of the quarter to be difficult. The good news is that a year ago, we anticipated market weakness, and we took action to prepare our business and our balance sheet. The weather impacts have been an unwelcome surprise, but we've managed through that, and our teams have worked hard to protect the safety of our people and our operations. Adversity isn't a stranger to this company or this industry, and it makes me proud to see the way the team has responded to these circumstances. During market conditions like these, it's not unusual to hear about tonnage coming offline due to uneconomic cost profiles, and a few very small operators have even made recent bankruptcy announcements. Volatility in our industry is a constant, and its effects are often intensified in down markets. However, conditions like these can sometimes present opportunities for well-capitalized companies to consider bolting on a mine, reserve base, or other kind of property. When it comes to M&A, Our approach is to have an open-door policy, meaning we believe it's important to evaluate the landscape for any potential transactions that could strengthen alpha for the long term. We don't have any announcements to make today, but we continue to keep our eyes open for opportunities to fortify the financial and operational health of this already strong organization. Despite the rough market environment and uncertainty around tariffs that are getting most of the headlines, we understand that market analyst projections for global steel demand remain strong. with met coal supply expected to stay constrained over the long term. So with that, I will turn the call over to Todd for additional information about our quarterly financial results.

Thanks, Andy. Adjusted EBITDA for the fourth quarter was $53 million, up from $49 million in Q3. We sold 4.1 million tons in Q4, which is the same amount sold in the third quarter. Met segment realizations decreased quarter over quarter with an average fourth quarter realization of $127.84 compared to $132.76 for the third quarter. Export met tons priced against Atlantic Indices and other pricing mechanisms in the fourth quarter realized $122.24 per ton, while export coal priced on Australian Indices realized $124.71. These results are compared to realizations of $129.31 per ton and $128.61, respectively, in the third quarter. The fourth quarter realization for our metallurgical sales was a total weighted average of $132.63 per ton, down from $136.35 per ton in Q3. Realizations in the incidental thermal portion of the met segment decreased to $75.39 per ton in Q4, as compared to $76.33 per ton in the third quarter. Cost of coal sales for our MET segment decreased to $108.82 per ton in the fourth quarter, down from $114.27 per ton in Q3. SG&A, excluding non-cash stock compensation and non-recurring items, increased to $14.3 million in the fourth quarter, as compared to $13.4 million in Q3. CapEx for the quarter was $42.7 million, up from $31.5 million in Q3. Moving to the balance sheet and cash flows, as of December 31, 2024, we had $481.6 million in unrestricted cash, compared to $484.6 million of unrestricted cash as of September 30. We had $112.9 million in unused availability under our ABL at the end of the fourth quarter, partially offset by a minimum required liquidity of $75 million. As of the end of December, Alpha had total liquidity of $519.4 million, up from $507 million at the end of the third quarter. Cash provided by operating activities was $56.3 million in the fourth quarter, down from $189.5 million in Q3. As a reminder, The third quarter cash flows were positively impacted by a decrease in working capital of $144.5 million. As of December 31st, our ABL facility had no borrowings and $42.1 million of letters of credit outstanding, a reduction of $15 million in letters of credit outstanding as compared to the end of the third quarter. We reduced our metallurgical shipment guidance for the year by 500,000 tons, bringing the range to 14.5 million to 15.5 million tons. This is largely due to the impact we're already seeing in the first quarter of the severe weather impacts on our own production levels as well as the production of our peers, which we expect will lower the volumes of coal we purchase in 2025. Together with that change, we increased the high end of our met cost of coal sales guidance for the year, widening the range to $103 per ton to $110 per ton, up from the prior range of $103 to $108. In terms of our committed position for 2025, at the midpoint of guidance, 32% of our metallurgical tonnage in the MET segment is committed and priced at an average price of $143.81. Another 56% of our MET tonnage for the year is committed but not yet priced. The thermal byproduct portion of the MET segment is 95% committed in price at the midpoint of guidance at an average price of $80.74. Due to the continued softness in the MET coal markets, we did not repurchase any shares in the fourth quarter under the company's share buyback program. As of February 21st, the number of common stock shares outstanding was approximately 13 million. The remaining stock buyback program authorization permits approximately $400 million in additional repurchases contingent on cash flow levels and market conditions. We have repurchased a total of 6.6 million shares under the existing plan and an average share price of $165.74. I will now turn the call over to Jason to provide an update on operations.

Thanks, Todd. Good morning, everyone. At the conclusion of each year, we evaluate each operations track record to determine the winners of our best-in-class awards. which recognize excellence in safety, environmental stewardship, and productivity, three critical pillars of Alpha's success. This year's extra special, as the award has been renamed in honor of our previous chairman and CEO, we are pleased to announce the winners of this year's David J. Stetson Best in Class Awards. Rolling Thunder Deep Mine won the Best Mine category. Mammoth Processing Plant was the winner of the Processing Plant category. and Arpich Loadout took home the honors in the Loadout category. Achieving this level of performance requires teamwork and a commitment to continuous improvement, and I want to offer my congratulations to each and every employee whose hard work earned these accolades, strengthening both their respective operations and the company as a whole. It's encouraging to see the competitiveness across the company as these teams work hard to earn this sought-after recognition. This makes us all better. While we call out only a few specific operations for best-in-class awards, it's important to acknowledge the good work occurring across our organization. For example, in the area of environmental stewardship, we maintained our 99.9% water quality compliance in 2024. A measure of success in safety is TRR, or total reportable incident rate, where we consistently performed favorably to the coal industry average. In the last two years, we've had back-to-back company records for this safety metric, along with the second best year on record for company-wide NFDL, or non-fatal days lost, which is another safety measure where we consistently performed better than the coal industry average. In aggregate, we had 41 workgroups, which totaled over 2.8% million exposure hours throughout 2024 calendar year with zero NFDO injuries. As we often say, a safe mine is a productive mine, and that holds true as our alpha underground productivity rates continue to exceed that of our non-long wall piers. I want to publicly praise our teams for continuing to perform exceptionally well in these and many other measures of safety, environmental compliance, and productivity. Turning to the quarter, I want to thank the operations teams for their continued hard work focusing on controlling spend while maintaining productivity. As Todd stated, quarter-over-quarter costs of coal sales were down approximately $6 a ton across equivalent sales volumes of 4.1 million tons. I'll remind everyone that typically the fourth quarter is challenging due to two planned shutdown periods across most of our operations. Heavy contributors to the quarter-over-quarter decrease came from lower supply and repair costs, as well as lower transportation and preparation costs. I appreciate everyone's continued focus on things within our control as we head into 2025. I'd also like to give an update on the Kingston Wildcat slope that we're developing in Pax, West Virginia. Our in-house crews continue to push the slope development down. As of today, we're approximately 880 feet deep, which is about halfway. We're still on track with our initial estimates to hit the coal seam and start taking development cuts in coal late this year. As a reminder, we expect the Wildcat mine will produce approximately one million tons of lowball coal per year when it reaches full production. Looking forward into Q1, I can tell you that 2025 has presented with some challenges. Weather data from Beckley, West Virginia, which is in the proximity of many of our operations, show year-to-date precipitation and snowfall have been 201% and 135% of normal, respectively. On top of the excessive precipitation, below average temperature has hindered operations. Internal and external transportation systems, our preparation facilities, utilities infrastructures, and safe means for employees to travel to work have all been compromised several times, which contributed to the change in cost guidance mentioned earlier. It's times like this where the hardest work often goes unnoticed, and I'd like to thank the alpha team members who doubled their efforts to ensure that internal roads and systems were kept open and operating to the very best of their abilities through the first couple challenging months of the year. With those operational updates, I'll now turn the call over to Dan for an update on the markets.

Thanks, Jason, and good morning, everyone. Metallurgical coal markets ended 2024 at sharply lower levels than they began the calendar year, with each of alpha's followed indices experiencing at least a 30% drop. For example, the Australian premium lowball index declined by 40% from the start of the year until the end. From the start to the finish of the fourth quarter specifically, there was limited movement among the four indices that alpha closely monitored. The Australian premium low vol index fell from $204.75 per metric ton on October 1, 2024 to $196.50 per metric ton on December 31, 2024. The U.S. East Coast low vol index decreased slightly from $189 per metric ton at the beginning of the quarter to $188 per metric ton at quarter end. The U.S. East Coast High Ball A Index fell from $184 per metric ton in October to $183 per metric ton at the end of December 2024. And finally, the U.S. East Coast High Ball B Index opened and closed the quarter at $171 per metric ton. Since the quarter closed, the Australian PLV decreased to $187 per metric ton as of February 26th. The U.S. East Coast Low Ball HVAL A and HVAL B indices measured $184, $180.50, and $167.50 per ton, respectively, as of the same date. In the seaborne thermal market, the API2 index was $118.25 per metric ton on October 1, 2024, decreased to $113.15 per metric ton on December 31, 2024. And since then, the API2 has fallen to $93 per metric ton as of February 26th. The downward movement in metallurgical coal indices are primarily due to a decline in steel demand, which has been influenced by uncertainty in geopolitics and economic conditions across the globe. With numerous elections having been held and leaders elected within 2024, markets are now attempting to digest the anticipated future actions and governing priorities of these recently installed governments. For example, the new US administration has expressed its commitment to imposing tariffs on certain imported goods and materials. If new tariffs are imposed and trade wars occur, these circumstances will likely impact natural coal trade flows and the cost of materials for coal producers. As we've seen in recent weeks, the tariff situation is one that changes rapidly, so we continue to keep an eye on it and we will adjust as necessary depending on where things land once the dust settles. Many of the factors that negatively influenced metallurgical coal markets last year, such as depressed steel demand, continue to loom over the current pricing environment. Additional uncertainty around fiscal policies, shifting geopolitical priorities and trade practices, as well as the overall economic health of the major coal producing and coal buying regions of the world will continue to influence metallurgical coal pricing. Absent an increase in steel demand and a more certain geopolitical and economic backdrop, challenging coal market conditions are expected to continue in the coming months. We continue to engage with customers as usual, making commitments for our 2025 export tonnage. Our most immediate challenges relate to the unfortunate weather conditions that have hammered the eastern United States in recent weeks, as they have created bottlenecks along the entire process of producing, moving by rail, and loading coal into vessels. We expect these negative influences to lower our overall shipments and therefore weigh on our quarterly results for both Q1 and Q2. At DTA, the team has done a great job of keeping operations running as smoothly as possible despite unfavorable weather conditions. As part of the multi-year program to upgrade equipment and infrastructure, a planned outage of roughly two weeks is scheduled to occur in May. While significant work and preparation have occurred to minimize the disruption to our shipping operations, we recognize that this outage has the potential to delay some shipments. And with that, operator, we are now ready to open the call for questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our first question comes from Nathan Martin with Benchmark Company. Please proceed with your question.

Thanks, operator. Good morning, guys.

Hey, how are you?

I'm doing well, thank you. Dan, maybe just coming back to your comments here at the end, how should we think about the cadence of sales as we go through the quarters here in 25? You mentioned clearly the weather disruptions to start the year. You just called out the planned outage of DTA in May. I think typical seasonality also limits domestic shipments in one queue anyways because of the weather. So maybe just get some thoughts on how you guys see that playing out quarter by quarter for 25. Thanks.

Yeah, Nate, I mean, I think the domestic shipments should be, the cadence on those should be roughly pro-rata. We don't have much lake business, so that should be fairly ratable through the year. On the export side, probably have more in the back half as we catch up from some of the missed shipments. We'll have what some of my team calls the accordion effect on the shipments. We'll have low inventories today. As things come back to normal, we'll pick up and resume slightly higher level shipments as we go forward. And the market depends. Some of that's market dependent, too. We expect the steel demand hopefully improves towards a back half. There should be some more spot demand and spot shipments as well.

Okay, got it, Dan. That's helpful. And then talking about cost per ton guidance, clearly you guys raised that $2 at the high end, as you mentioned. Is it possible to get a breakdown of that between the expectation for lower shipments, the purchase coal, how that impacted the cost range, and then the difficult weather to start the year? Any way to quantify that?

Hey, Nate. It's Andy. I don't think so. I mean, we're kind of picking this there. And again, we only increased the upper range by $2. And it's It's a little bit of a fudge factor, to be honest. We do know that there's going to be some, we've seen the cost impacts in actuals in January. We haven't seen February actuals, of course. But we do expect some impact there. So we're really just guarding against any kind of issues with Q1 throwing us off track for guides. It gives us a little bit of breathing room. But we do know there's at least a dollar of impact baked in there to the midpoint. And it is You know, it's really hard to break it down between any of the contributing factors.

Okay, that's fair, Andy. I get it. Maybe just shifting over to the price side, looks like you guys priced some export MET tons now at $113. If my math is close, it's probably around a million tons, maybe a little bit more than that based on the rest of your guidance. Could we get an idea maybe of the quality or index mechanism being used for those tons? Even in this market, I feel like that 113 is maybe a little lower than I would have expected and clearly getting close to kind of the high end of that cost per ton guidance now. But maybe it's just because it's high vol B or going CFR or whatever, but some additional color would be great.

Yeah, those tons probably are high vol tons. We're still anticipating a little bit uplift in the price curves as the year goes on. I can't really comment if they're going to be high vol A, high vol B. You can't get too granular on that. But broadly speaking, those tons would be priced as high vol. I will say that supply is a little tighter than maybe you'd read in the rags these days, that the weather impacts on the East Coast have affected all cap producers and nap producers as well. So I think maybe things are being a little bit underreported as far as supply.

Okay, Dan, got it. Appreciate that. And then maybe just one more, guys, just kind of thinking about the macro in general. You made a couple comments related to tariffs. I was just thinking, we know Alfa is one of the largest suppliers of met coal to the domestic steel markets. And given the moves we've seen thus far from the new administration, what are your thoughts on how that could impact your domestic demand for your products? And what's your ability to shift tons back and forth, domestic export, to kind of maximize your margins there?

Thanks. Sure. We certainly have the ability to shift some tons between the two, between seaboard and domestic. I think when you look at the domestic market, it sort of begins and ends with the blast furnaces. And right now, our customers are running their blast furnaces that they intend to run, let's say. I'm not sure that there will be additional blast furnace production coming on. If there is, then that's going to require additional coke production, and then that will require additional coke and coal. So to the extent that happens, we're prepared. I'm not sure I see signals that that will happen yet, though.

Great. Appreciate those thoughts, Dan. Thank you guys for your time, and best of luck in 2025.

Thanks, Nate.

Our next question comes from the line of Nick Giles with B. Riley. Please proceed with your question.

Thanks, operator. Good morning, everyone. Guys, congratulations on all your accomplishments at the operating level. I'm sure the trophy case is getting pretty full. My first question is, you know, cash for $480 million, which I believe is roughly flat quarter over quarter, but still higher than historical periods. Is this kind of the level we should expect you to target if the market remains weak, and then what kind of level should we think about if markets are to turn, and how should we square this with cash that could be deployed towards share purchases? Thanks so much.

Yeah, and thanks, Nick, for the compliment. It's kind of lost in the chaos of the market right now of how well operations did perform in Q4, and so We don't want to gloss that over. As I mentioned, the bad market and tariffs get the headlines, but the real story here is how well operations performed in the quarter, both from productivity. Once again, we're top of the heap on the MET production side. As far as MSHA productivity metrics, our safety was off the charts, not just for the quarter, but for the year. So a lot of good work happening there. But talking about liquidity, I mean, our target has been, and we talked about, we started this conversation a year ago, really, a year ago, almost this week, of we felt the market was getting some weak legs, and we went into cash preservation mode. So we suspended the share repurchase, and we wanted to warehouse as much cash as possible. We have hit this kind of a static rate in that, generally speaking, we'll call it a $400 million to $500 million gap. range of cash and then additional liquidity from the ABL. We want to hold onto that as long as we possibly can. We're going to continue managing to cash rather than any other outside situation. At this point, I don't know that we're really interested in thinking about any share repurchase activity or any kind of capital returns until we do see some trend in the market going the other direction. this thing has set in for a little bit and there's just a lot of uncertainty. So I think we're going to kind of maintain course on what we've been doing. And job one has always been protect the franchise. We're going to continue that direction.

Makes sense. I appreciate that, Andy. Maybe just from an M&A perspective, I think you may have alluded to some potential opportunities out there. Any other additional color around those, whether from a size perspective or what kind of metrics are you paying attention to, what geographies make most sense? Would this be some of your central out peers, for instance?

Yeah, and again, let me go ahead and warn you, there's nothing actionable out there at the moment. There are obviously some processes going on with certain assets. There are some bankruptcy processes that are working through the system. So there are lots of opportunities to do some things that could be at kind of a low entry cost. The issue now is you have to be careful of watching for cash burn from operations. That's the thing you have to keep an eye on. But there are potentially some opportunities. We've always thought about the filter of number one, it needs to be geographically synergistic. Number two, it needs to be somewhat synergistic or additive from a coal quality standpoint. And thirdly, it needs to be in some way accretive, whether it's net income, cash flow, EBITDA, some metric, it needs to make some sense. And, you know, at this point in time, it's a little bit tougher to hit the accretion mark. But, again, right now is not forever. So if there's some opportunities for us to see some consolidating M&A, whether it's, you know, very, very small or, you know, slightly larger than a bite size, then we're going to have to strongly consider it.

That's helpful. Maybe just one more from me. Any color around kind of where you see marginal cost today? Any other comments you can share around how much supply out of Central App might have come out of the market to date and how much could be at risk?

Oh, goodness. That's the billion-dollar question right there. I mean, we have seen a few tons come out. Some of it has been through actual Mine idling, some of it has been through operational interruptions for other reasons. So it's kind of hard to gauge how much of these are permanently gone or even more midterm tons that are out of the market. So I don't want to comment on that. I do think another thing that we talked about last year was the cost curve. At the time, the cost curve was the C90 was around, the view was it was 225, and the thought was that would provide a floor. And obviously that has not been the case. It still boils down to know the breakdown of fixed versus variable cost and what what optimizes cash flow for these operations i think we are at this point i think we've probably we've probably crossed the rubicon in some respect of several operations that are moving into that zip code of where they may not be covering their variable costs on some of their tons so i would expect you know obviously kind of stating the obvious as this market continues we'll see more pressure on these, particularly the smaller operators that don't have the ability to spread their fixed costs across a bunch of times. We're going to see more of those folks exiting and a lot of the higher cost operations could be coming out sooner rather than later. We're not going to comment on anything specific because everybody's got to make their own decisions. I can't see how there's not more to come. I do think marginal cost is becoming a real issue at this point, and I think that's where the pressure is going to apply, particularly in central Appalachia.

Andy, I appreciate all that color. If I could sneak in one more, maybe just on the transportation side, can you just remind us of maybe any sensitivity to pricing and then I believe your transportation costs don't work on a lag, so if you could just clarify that, that would be helpful.

You're referring to rail costs?

Correct.

Yeah. We don't really comment on that. Those are contractual situations with both railroads, so we don't say too much. I mean, they are somewhat aligned with indexes, so that's probably all I should say about that.

Fair enough. Well, Andy and team, I want to commend you on all your efforts in this tough market, so keep up the good work.

Thank you very much.

We have reached the end of the question and answer session. I'd now like to turn the call back over to Andy Edson for closing remarks.

Well, thanks, everyone, for your time today. We appreciate you, and we'll see you next quarter. Have a great rest of the day and a great weekend.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.